2024 (2) TMI 810 - HC - GST

Tax Registration Cancellation Overturned: Authority Ordered to Provide Reasoned Decision and Fair Opportunity to Respond

Sachin Kaushal Versus State of U.P. And 2 Others

Sachin Kaushal Versus State of U.P. And 2 Others - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an order of cancellation of registration passed by the Adjudicating Authority under the Uttar Pradesh Goods and Services Tax Act, 2017 is vitiated for want of application of mind and absence of reasons, thereby violating Article 14 of the Constitution. 2. Whether an appellate authority under Section 107 of the Act has power to condone delay in filing an appeal and whether an appeal dismissed as time-barred affects the availability of a substantive challenge to a non-reasoned original order (doctrine of merger issue). 3. What remedial relief is appropriate where an order cancelling registration is found to be non-reasoned: remand for fresh adjudication with opportunity to file reply and be heard, and the temporal scope for filing such reply. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of cancellation order for want of application of mind and absence of reasons Legal framework: Administrative and quasi-judicial orders affecting rights (here, registration to run business) must indicate reasons; reasons are integral to judicial/administrative orders and necessary for compliance with Article 14 (and implicate Article 19). The Act permits cancellation of registration by the Adjudicating Authority on specified grounds, but such power must be exercised after application of mind and in a reasoned manner. Precedent treatment: The Court relied on coordinate and Division Bench decisions of the same High Court holding that administrative/quasi-judicial orders must state reasons (citing analogous authority in principle). The Supreme Court authority on requirement of reasons in administrative decisions was invoked as guiding precedent. Interpretation and reasoning: The impugned original order contained internally contradictory statements about receipt of reply to the show-cause notice, indicating no real consideration of the petitioner's response. The absence of any articulated reasons in the original order demonstrates a failure to apply mind. Given that the order adversely affects the right to conduct business, the lack of reasons fails the test of reasoned decision-making mandated by Article 14 and the settled administrative law principle that 'reasons are the heart and soul of any judicial or administrative order.' Ratio vs. Obiter: Ratio - an administrative/quasi-judicial order cancelling registration must record reasons and demonstrate application of mind; absence of reasons vitiates the order and warrants setting it aside. The Court's reliance on prior authority to support this rule is ratio. Observations on the importance of reasons generally are explanatory but form part of the operative rationale. Conclusion: The original cancellation order was set aside for want of application of mind and absence of reasons; it did not satisfy Article 14 standards. Issue 2: Power of appellate authority under Section 107 to condone delay and effect of time-barred appeal on challenge to a non-reasoned original order (doctrine of merger) Legal framework: Section 107 of the Act governs appeals against orders under the Act; the statutory scheme prescribes time limits for filing appeals and contemplates the appellate authority's jurisdictional limits. Principles of merger generally operate where an appeal is decided on merits and may merge the original order into the appellate order. Precedent treatment: The Court noted that the appellate authority does not have power to condone delay in filing appeals under the scheme of the Act (as addressed by counsel and considered by a Division Bench in a comparable matter), and distinguished between appeals dismissed as time-barred and appeals decided on merits. Interpretation and reasoning: Because the appeal was barred by time and the appellate order dismissed the appeal on that ground (and not on merits), the appellate order does not represent a substantive adjudication of the rights/grounds in the original order. Consequently, the doctrine of merger is inapplicable where the appeal was not decided on merits. Where the original order is non-reasoned, an appellate dismissal on procedural grounds cannot cure the vice of non-reasoned original decision nor preclude corrective intervention by the High Court under writ jurisdiction. Ratio vs. Obiter: Ratio - where an appeal is dismissed as time-barred, the appellate order does not bar scrutiny of a non-reasoned original order and the doctrine of merger will not apply to defeat substantive review. Observations on the appellate authority's inability to condone delay under the Act, as applicable facts indicated, form part of the operative reasoning. Conclusion: The appellate dismissal on time-bar grounds did not preclude quashing the original non-reasoned cancellation order; the appellate authority's procedural dismissal does not validate a fundamentally unreasoned original order. Issue 3: Appropriate remedial relief - requirement of fresh adjudication, opportunity to reply and be heard, and timeframe Legal framework: Where an administrative/quasi-judicial order is quashed for lack of reasons, equitable and remedial principles require a fresh decision in accordance with statutory procedure, affording the affected party an opportunity to be heard and to file relevant replies/defences. The Court's writ jurisdiction under Article 226 permits setting aside and remanding non-reasoned orders for fresh consideration. Precedent treatment: The Court followed prior decisions directing remand for de novo consideration where the original order lacked application of mind and reasons; such precedents support providing an opportunity to file reply and be heard before passing a fresh order. Interpretation and reasoning: In the present facts, justice requires that the petitioner be permitted to file a reply to the show-cause notice within a specified period and that the Adjudicating Authority proceed afresh, giving an opportunity of hearing and considering any defence. This ensures compliance with principles of natural justice and statutory mandate, and rectifies the procedural defect without pre-empting substantive determination by the Adjudicating Authority. Ratio vs. Obiter: Ratio - quashing of a non-reasoned cancellation order must be followed by a direction to file reply within a reasonable timeframe and for the Adjudicating Authority to decide de novo after hearing; this remedial course is obligatory where the original order is vitiated by lack of reasons. Specific timeframe directions given in this case are situationally operative (ratio for this case), though courts may vary timelines on facts. Conclusion: The Court quashed the original and appellate orders and directed the petitioner to file reply within three weeks and the Adjudicating Authority to pass a fresh order after granting opportunity of hearing and considering the defence, thereby restoring procedural fairness and enabling adjudication on merits. Cross-reference: Issues 1 and 2 are interlinked - the absence of reasons in the original order (Issue 1) was determinative of the court's power to intervene notwithstanding the appeal being time-barred (Issue 2); Issue 3 follows as the remedial consequence of the findings on Issues 1 and 2.